With all the hype in the market these days as the economy recovers, the vaccines are rolled out and more stimulus from Washington seems to be just over the horizon, you've likely noticed options contracts are getting very expensive.
Those high prices for contracts take the wind out of sails when it comes to trading options. For one, higher prices mean more risk since you have more to lose. And when you start at a high price, there may not be as much room for the trade to profit.
We have a solution for that problem, and it's making for our best call options to trade right now.
One of the many benefits of options trading is the ability - and flexibility - to be bullish or bearish simply by choosing the right options contract. Most people think that if you buy a call option, you are bullish and will profit if the underlying stock moves higher in price.
That is true, but there is much more to it.
The good news is that we can sell options, just as easily as buying them, to take advantage of the current market condition. We'll just sell high and buy low later. It's the same formula you are used to seeing but just in reverse.
Of course, every strategy has its own unique characteristics and its own risk, so not every trade is suited to all investors. However, options can offer even more flexibility by hedging your bets. We'll get to that in a minute.
There is one more benefit. You can trade a position on a high-priced stock with much less money, and this comes in especially handy when you are interested in really big stocks like the FAANGs: Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Netflix Inc. (NASDAQ: NFLX), and Google/Alphabet Inc. (NASDAQ: GOOGL).
That's exactly what we're going to do today.
Here's how you can make a quick 70% gain on one of the hottest stocks on the market using our special call options trade...
The Best Call Options to Trade Now
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That leads us into today's best option to trade right now. Money Morning's options trading specialist, Tom Gentile, has noticed that money is starting to move out of these Big Tech leaders. Despite the S&P 500 reaching new highs in recent days, most of the FAANGs have traded sideways or even declined since we got word that a crop of effective COVID-19 vaccines was on the way.
Tom thinks Amazon is in the weakest position for a trade. Don't get us wrong; it is still a great company and a stock worth holding for the long haul. However, it does present a good opportunity for a short-term trade as we look for further weakness.
The problem is that selling a call option on Amazon leaves you open to big risk. In fact, if Amazon keeps moving higher, your theoretical risk would be unlimited. That is not the kind of trading we like to do.
Rather, Tom suggests a bearish call spread, also known as a credit spread, because when you initiate the trade, your account gets credited with the net premium for the options up front.
Here is how it works. You might want to sell a call right about where the market is now, which would be an AMZN Dec. 18 2020 $3,160 call and pocket around $380 in premium. Then, you buy some protection a little further out of the money, like the AMZN Dec. 18 2020 $3,175 call, and pay around $320, so your net credit is around $60.
So, you start with $60 in your account and look to make a quick 70% if Amazon weakens through the week.
Remember, this is a very short-term trade, as it expires in just a few days. But that works in your favor because if Amazon dips below $3,160 per share, both options will expire worthless, and you keep the entire credit in your account. And as long as the stock stays below $3,175, you will still make at least some money.
He Made Millions Trading for an Hour Before Breakfast
Andrew Keene was living with his parents. Two years later, he had $5 million to play with - all because of this one strategy.
The crazy thing is you can do it in less than 90 minutes a week.
To see how easy your life could be, click here.